FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarterly period ended March 31, 1998
Commission File No. 0-14895
Granite State Bankshares, Inc.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0399222
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
122 West Street, Keene, New Hampshire 03431
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (603) 352-1600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of each of the issuer's classes
of common stock, as of May 12,1998 was 5,857,626, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Earnings
Three months ended March 31, 1998 and 1997 4
Consolidated Statements of Comprehensive Income
Three months ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
March 31, December 31,
($ in thousands, except par values) 1998 1997
---------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 38,235 $ 28,677
Interest bearing deposits in Federal Home
Loan Bank of Boston, at cost, which
approximates market value 9,731 27,452
Securities available for sale (amortized cost
$141,522 at March 31, 1998 and $169,373
at December 31, 1997) 150,745 178,680
Securities held to maturity
(Market value $14,370 at March 31, 1998
and $34,170 at December 31, 1997) 14,217 33,910
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 1,220 1,068
Loans 528,571 509,165
Less: Unearned income (1,474) (1,432)
Allowance for possible loan losses (7,492) (7,651)
-------- --------
Net loans 519,605 500,082
Premises and equipment 19,029 18,863
Other real estate owned 1,589 1,905
Other assets 14,556 15,832
------- -------
Total assets $ 776,128 $ 813,670
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 563,558 $ 577,713
Noninterest bearing deposits 69,702 71,270
------- -------
Total deposits 633,260 648,983
Securities sold under agreements to
repurchase 62,678 66,025
Other borrowings 5,585 25,877
Other liabilities 3,859 5,871
------- -------
Total liabilities 705,382 746,756
Preferred stock, $1.00 par value; authorized
7,500,000 shares; none issued
Common stock, $1.00 par value; authorized
12,500,000 shares; 6,769,309 and 6,493,640
shares issued at March 31, 1998 and
December 31, 1997, respectively 6,769 6,494
Additional paid-in capital 36,571 34,730
------- -------
43,340 41,224
Accumulated other comprehensive income 5,661 5,713
Retained earnings 28,157 26,389
------- -------
77,158 73,326
Less: Treasury stock, at cost, 920,305 shares
at March 31, 1998 and December 31, 1997,
respectively (6,305) (6,305)
Unearned compensation - ESOP (107) (107)
------- -------
Total stockholders' equity 70,746 66,914
------- -------
Total liabilities and stockholders'
equity $ 776,128 $ 813,670
======= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Earnings
Three Months Ended
March 31,
------------------
($ in thousands, except per share data) 1998 1997
-------- --------
<S> <C> <C>
(Unaudited)
Interest and dividend income:
Loans $ 11,275 $ 9,791
Debt securities available for sale 2,276 2,554
Marketable equity securities available for sale 179 170
Securities held to maturity 520 1,486
Dividends on Federal Home Loan Bank of Boston stock 116 104
Other interest 81 177
------- -------
14,447 14,282
Interest expense:
Savings deposits 1,889 1,802
Time deposits 3,879 3,767
Borrowed funds 918 1,594
------- -------
6,686 7,163
------- -------
Net interest and dividend income 7,761 7,119
Provision for possible loan losses 300 225
------- -------
Net interest and dividend income after
provision for possible loan losses 7,461 6,894
Noninterest income:
Customer account fees and service charges 572 699
Mortgage service fees 148 165
Net gains on sales of securities available for sale 1,099 2,060
Net gains on sales of loans 132 73
Other 296 246
------- -------
2,247 3,243
Noninterest expense:
Salaries and benefits 2,975 3,062
Occupancy and equipment 1,017 1,059
Other real estate owned 127 23
Other 1,740 1,983
------- -------
5,859 6,127
------- -------
Earnings before income taxes 3,849 4,010
Income taxes 1,342 1,173
------- -------
Net earnings $ 2,507 $ 2,837
======= =======
Weighted average shares outstanding:
Basic 5,747,055 5,405,741
Diluted 5,969,875 5,674,460
Net earnings per share -basic $ 0.44 $ 0.52
Net earnings per share -diluted $ 0.42 $ 0.50
Cash dividends declared per share $ .125 $ .06
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Comprehensive Income
Three Months Ended
March 31,
-------------------
($ in thousands) 1998 1997
------ ------
<S> <C> <C>
(Unaudited)
Net earnings $ 2,507 $ 2,837
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
arising during the period 623 470
Less: reclassification adjustment for
gains (losses) realized in net earnings (675) (1,264)
------ -------
(52) (794)
------ -------
$ 2,455 $ 2,043
====== =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
------------------
Increase (decrease) in cash ($ In Thousands) 1998 1997
------ ------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net earnings $ 2,507 $ 2,837
Adjustments to reconcile net earnings to
net cash provided by operating activities
Provision for possible loan losses 300 225
Provision for depreciation and amortization 595 587
Net accretion of security discounts and premiums (58) (1)
Provision for loss on other real estate owned 23
Realized gains on sales of securities available
for sale, net (1,099) (2,060)
Loans originated for sale (7,517) (4,046)
Proceeds from sale of loans originated for sale 7,497 4,825
Realized gains on sales of loans (132) (73)
Realization of unearned income 42 42
Realized (gains) loss on sales of
other real estate owned 34 (3)
Deferred income taxes (benefits) 98 (20)
Decrease in other assets 1,145 49
Increase (decrease) in other liabilities (1,939) 788
------ ------
Net cash provided by operating activities 1,496 3,150
Cash flows from investing activities:
Purchase of securities held to maturity (6,075)
Proceeds from maturities and calls of securities
held to maturity 19,765 5,000
Principal payments received on securities held
to maturity 554
Proceeds from sales of securities available
for sale 1,479 29,804
Proceeds from maturities and calls of securities
available for sale 28,250 11,000
Purchase of securities available for sale (2,586) (52,554)
Principal payments received on securities
available for sale 1,792 2,990
Purchase of Federal Home Loan Bank of Boston
stock (387)
Loan originations, net of repayments (19,865) (12,783)
Purchase of premises and equipment (607) (841)
Proceeds from sales of other real estate owned 259 587
Net decrease in interest-bearing deposits with
Federal Home Loan Bank of Boston 17,721 5,609
Other (13) (27)
------- -------
Net cash provided by (used in) investing
activities 46,195 (17,123)
Cash flows from financing activities:
Net increase in demand, NOW, money market and
savings accounts 6,647 9,804
Net increase (decrease) in time certificates (22,370) 7,124
Net decrease in securities sold under agreements
to repurchase (3,347) (14,113)
Net increase (decrease) in other borrowings (20,292) 10,175
Proceeds from issuance of common stock 1,849 278
Purchase of treasury stock (304)
Dividends paid on common stock (620) (285)
------- -------
Net cash provided by (used in) financing
activities (38,133) 12,679
------- -------
Net increase (decrease) in cash and due
from banks 9,558 (1,294)
Cash and due from banks at beginning of period 28,677 30,559
------- -------
Cash and due from banks at end of period $ 38,235 $ 29,265
======= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1. Financial Statements
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
current fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
The consolidated financial statements and per share data for the three
months ended March 31, 1997, included herein, have been restated to reflect the
pooling of interests with Primary Bank, which was completed after the close of
business on October 31, 1997, as if the transaction had been in effect as of the
beginning of all periods presented. Per share data and common stock data for
1997 have also been restated to reflect the Company's three-for-two stock split
effected in the form of a 50% stock dividend, paid on May 9, 1997.
Certain information in the 1997 financial statements has been
reclassified to conform with the 1998 presentation.
Note 2. Earnings Per Share
The Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"), effective December 31, 1997
and has restated earnings per share ("EPS") for all prior-period EPS data
presented. SFAS No. 128 specifies the computation, presentation and disclosure
requirements for EPS for entities with publicly held common stock or potential
common stock.
Basic EPS is computed by dividing net earnings by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company.
Note 3. Comprehensive Income
The Company adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), effective
January 1, 1998. SFAS No. 130 establishes standards for reporting comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
The Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Reclassification of financial statements for earlier
periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income in a separate
statement of comprehensive income, in which the components of comprehensive
income are displayed net of income taxes.
The following table sets forth the related tax effects allocated to
each element of comprehensive income for the three months ended March 31, 1998
and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998
------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ----------- -----------
<S> <C> <C> <C>
Unrealized gains (losses) on (In Thousands)
securities available for sale:
Unrealized holding gains (losses)
arising during period $ 1,015 $ (392) $ 623
Less: reclassification adjustment for
gains (losses) realized in net income (1,099) 424 (675)
------- ------ ------
Net unrealized gains (losses) (84) 32 (52)
------- ------ ------
Other comprehensive income $ (84) $ 32 $ (52)
======= ====== ======
<CAPTION>
Three Months Ended March 31,
----------------------------
1997
------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ----------- -----------
<S> <C> <C> <C>
Unrealized gains (losses) on (In Thousands)
securities available for sale:
Unrealized holding gains (losses)
arising during period $ 766 $ (296) $ 470
Less: reclassification adjustment for
gains (losses) realized in net income (2,060) 796 (1,264)
------- ------ ------
Net unrealized gains (losses) (1,294) 500 (794)
------- ------ ------
Other comprehensive income $(1,294) $ 500 $ (794)
======= ====== ======
</TABLE>
The following table sets forth the components of accumulated other
comprehensive income for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
(In Thousands)
Beginning balance $ 5,713 $ 1,589
Unrealized gains (losses) on
securities available for sale,
net of taxes (52) (794)
------ ------
Ending balance $ 5,661 $ 795
====== ======
</TABLE>
Note 4. Operating Segments
The Company adopted Financial Accounting Standards Board Statement
No. 131, "Disclosures About Segments of an Enterprise and Related Information",
("SFAS No. 131"), effective January 1, 1998. This Statement establishes
standards for reporting information about segments in annual and interim
financial statements. SFAS No. 131 introduces a new model for segment reporting
called the "management approach". The management approach is based on the way
the chief operating decision-makers organize segments within the company for
making operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management structure
and any other manner in which management disaggregates a company. Based on the
"management approach" model, the Company has determined that its business is
comprised of a single operating segment and that SFAS No. 131 has no impact on
its financial statements.
Note 5. Securities
Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and reported at amortized
cost; debt and equity securities that are bought and held principally for the
purpose of selling in the near term are classified as trading and reported at
fair value, with unrealized gains and losses included in earnings; and debt and
equity securities not classified as either held-to-maturity or trading are
classified as available-for-sale and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as part of accumulated
other comprehensive income, net of related tax effects. At March 31, 1998 and
December 31, 1997, the Company had no securities classified as trading
securities.
The amortized cost, estimated market value and carrying value of
securities at March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At March 31, 1998 Cost Market Value Value
---------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 14,217 $ 14,370 $ 14,217
------ ------ ------
Total securities held to maturity $ 14,217 $ 14,370 $ 14,217
====== ====== ======
Securities available for sale
US Treasury obligations $ 82,482 $ 83,029 $ 83,029
US Government agency obligations 15,993 15,936 15,936
Other corporate obligations 8,493 8,512 8,512
Mortgage-backed securities:
FNMA 10,785 10,721 10,721
FHLMC 6,012 6,013 6,013
GNMA 2,121 2,197 2,197
SBA 724 741 741
------ ------ ------
Total mortgage-backed securities 19,642 19,672 19,672
Mutual Funds 6,085 6,203 6,203
Marketable equity securities 8,827 17,393 17,393
------- ------- -------
Total securities available for sale $141,522 $ 150,745 $ 150,745
======= ======= =======
<CAPTION>
Amortized Estimated Carrying
At December 31, 1997 Cost Market Value Value
---------- ------------- --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 33,910 $ 34,170 $ 33,910
------ ------ ------
Total securities held to maturity $ 33,910 $ 34,170 $ 33,910
====== ====== ======
Securities available for sale
US Treasury obligations $ 82,470 $ 82,969 $ 82,969
US Government agency obligations 44,218 44,199 44,199
Other corporate obligations 8,493 8,508 8,508
Mortgage-backed securities:
FNMA 11,723 11,677 11,677
FHLMC 6,562 6,547 6,547
GNMA 2,418 2,502 2,502
SBA 765 782 782
------ ------ ------
Total mortgage-backed securities 21,468 21,508 21,508
Mutual Funds 6,005 6,113 6,113
Marketable equity securities 6,719 15,383 15,383
------- ------- -------
Total securities available for sale $169,373 $ 178,680 $ 178,680
======= ======= =======
</TABLE>
Note 6. Loans
<TABLE>
<CAPTION>
Loans consist of the following at:
March 31, December 31,
1998 1997
---------- -------------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 67,365 $ 68,513
Real estate-residential 270,608 245,577
Real estate-commercial 152,057 151,474
Real estate-construction and
land development 3,104 6,000
Installment 10,580 11,588
Other 24,857 26,013
-------- --------
Total loans 528,571 509,165
Less:
Unearned income (1,474) (1,432)
Allowance for possible loan losses (7,492) (7,651)
-------- --------
Net loans $ 519,605 $ 500,082
======== ========
</TABLE>
Real estate mortgage loans and other loans are stated at the amount of
unpaid principal, less unearned income and the allowance for possible loan
losses.
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. When management determines that significant
doubt exists as to collectibility of principal or interest on a loan, the loan
is placed on nonaccrual status. In addition, loans past due 90 days or more as
to principal or interest are placed on nonaccrual status, except those loans
which, in management's judgment, are fully secured and in the process of
collection. Interest accrued but not received on loans placed on nonaccrual
status is reversed and charged against current operations. Interest
subsequently received on nonaccrual loans is either applied against principal
or recorded as income according to management's judgment as to the
collectibility of principal.
Loans considered to be uncollectible are charged against the allowance
for possible loan losses. The allowance is increased by charges to current
operations in amounts sufficient to maintain the adequacy of the allowance. The
adequacy of the allowance is determined by management's evaluation of the
extent of existing risks in the loan portfolio and prevailing economic
conditions.
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1998 1997
------ ------
<S> <C> <C>
(In Thousands)
Balance, beginning of period $ 7,651 $ 6,253
Provision for possible loan losses 300 225
Loans charged off (599) (314)
Recoveries of loans previously charged off 140 35
------ ------
Balance, end of period $ 7,492 $ 6,199
====== ======
</TABLE>
Impaired loans consist of the following at:
<TABLE>
<CAPTION> March 31, December 31,
1998 1997
--------- -----------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 1,690 $ 4,559
====== ======
Impaired loans with specific loss allowances $ 1,690 $ 4,559
====== ======
Loss allowances reserved on impaired loans $ 709 $ 1,054
====== ======
</TABLE>
The Company's policy for interest income recognition on impaired loans
is to recognize income on impaired loans on the cash basis when the loans are
both current and the collateral on the loan is sufficient to cover the
outstanding obligation to the Company; if these factors do not exist, the
Company will not recognize income. The average recorded investment in impaired
loans was $3,955,000 and $2,673,000 for the three months ended March 31, 1998
and 1997, respectively. During the three months ended March 31, 1998 and 1997,
the Company recognized no income on impaired loans.
Note 7. Interest Bearing Deposits
<TABLE>
<CAPTION>
Interest bearing deposits consist of the following at:
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
(In Thousands)
NOW and Super NOW accounts $ 177,379 $ 166,773
Savings accounts 90,476 89,278
Money market deposit accounts 27,897 31,486
Time certificates 267,806 290,176
------- -------
$ 563,558 $ 577,713
======= =======
</TABLE>
Note 8. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
(In Thousands)
Cash paid for interest $ 6,774 $ 7,187
Income taxes paid 150 0
Non-cash investing activities:
Real estate acquired in settlement of loans 0 356
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
March 31, 1998
General
All information within this section should be read in conjunction with
the consolidated financial statements and notes included elsewhere in this Form
10-Q. All references in the discussion to financial condition and results of
operations are to the consolidated financial position of the Company and its
subsidiary taken as a whole.
The principal business of the Company is to serve as a financial
intermediary attracting deposits from the general public and making both
secured and unsecured loans. The operating results of the Company depend
primarily on net interest income earned by the Company's subsidiary, Granite
Bank ("the subsidiary bank"). Net interest income is the difference between
interest and dividend income on interest earning assets, primarily loans and
securities, and interest expense on interest bearing liabilities, which consist
of deposits and borrowings. Operating results of the Company also depend upon
the provision for possible loan losses, noninterest income, noninterest expense
and income taxes.
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial condition and results of operations.
The Company cautions that these forward-looking statements are subject to
numerous assumptions, risks and uncertainties, and that statements for periods
subsequent to March 31, 1998 are subject to greater uncertainty because of the
increased likelihood of changes in underlying factors and assumptions. Actual
results could differ materially from forward-looking statements. The following
factors could cause actual results to differ materially from such forward-
looking statements: continued pricing pressure on loans and deposit products,
actions of competitors, changes in economic conditions, the extent and timing
of actions of the Federal Reserve, customers' acceptance of the Company's
products and services and the extent and timing of legislative and regulatory
actions and reforms. The Company's forward-looking statements speak only as of
the date on which such statements are made. By making forward-looking
statements, the Company assumes no duty to update them to reflect new, changing
or unanticipated events or circumstances.
Financial Condition
Total assets decreased by $37,542,000 or 4.61%, from $813,670,000 at
December 31, 1997 to $776,128,000 at March 31, 1998.
Interest bearing deposits with the Federal Home Loan Bank of Boston
decreased $17,721,000, from $27,452,000 at December 31, 1997 to $9,731,000 at
March 31, 1998. Such investments are short-term overnight investments and the
level of the Company's investment in these instruments fluctuates as investments
are made in other interest earning assets such as loans, securities held to
maturity and securities available for sale, and as balances of interest bearing
liabilities such as deposits, securities sold under agreements to repurchase and
other borrowings fluctuate. These instruments are also used to fund cash and
due from bank requirements.
Securities held to maturity decreased $19,693,000, from $33,910,000 at
December 31, 1997 to $14,217,000 at March 31, 1998. Securities available for
sale decreased $27,935,000, from $178,680,000 at December 31, 1997 to
$150,745,000 at March 31, 1998. Proceeds from decreases in securities held to
maturity and securities available for sale were invested in residential real
estate loans and funded decreases in deposits and securities sold under
agreements to repurchase as well as repayment of Federal Home Loan Bank of
Boston borrowings.
Net loans were $519,605,000 at March 31, 1998, an increase of
$19,523,000 from $500,082,000 at December 31, 1997. The increase reflects
strong loan demand in the residential real estate market as a result of the
continued low interest rate environment which encouraged refinancing, as well
as new home purchases in the subsidiary bank's market areas.
Total deposits decreased $15,723,000, from $648,983,000 at
December 31, 1997 to $633,260,000 at March 31, 1998. The significant changes
in deposits related to a decrease in time certificates of $22,370,000 partially
offset by an increase in NOW and Super NOW accounts of $10,606,000. The
decrease in the time certificates related primarily to depositors looking to
achieve higher yields by investing their funds in alternate sources outside of
traditional bank products, while the continued success of the NOW account
product introduced by the subsidiary bank in 1995 contributed to the increase
in NOW and Super NOW accounts.
Securities sold under agreements to repurchase decreased $3,347,000,
from $66,025,000 at December 31, 1997 to $62,678,000 at March 31, 1998. Such
accounts usually reach a peak in June and December as municipalities invest the
real estate taxes they collect and decrease after those periods as the
municipalities use their invested cash.
Other borrowings consisted of borrowings and advances from the Federal
Home Loan Bank of Boston and amounted to $5,585,000 at March 31, 1998 and
$25,877,000 at December 31, 1997. The decrease relates to repayments of other
borrowings during the three months ended March 31, 1998.
Stockholders' equity increased by $3,832,000 during the first three
months of 1998, from $66,914,000 at December 31, 1997, to $70,746,000 at
March 31, 1998. The increase was due to $2,507,000 of net earnings and
$2,116,000 relating to the issuance of common stock upon the exercise of common
stock options and related tax benefits, partially offset by $739,000 of common
stock dividends declared, and a $52,000 decrease in unrealized gains on
securities available for sale, net of related tax effects.
Results of Operations
Net Earnings
Net earnings for the three months ended March 31, 1998 were $2,507,000,
compared to $2,837,000 for the three months ended March 31, 1997. Basic earnings
per share were $.44 for the three months ended March 31, 1998, compared to $.52
for the three months ended March 31, 1997. Diluted earnings per share were $.42
for the three months ended March 31, 1998 compared to $.50 for the three months
ended March 31, 1997. Included in net earnings were gains on sales of
securities available for sale of $1,099,000 and $2,060,000, respectively for
the three months ended March 31, 1998 and 1997. Earnings before income taxes,
excluding gains on sales of securities available for sale, were $2,750,000 for
the three months ended March 31, 1998 compared to $1,950,000 for the three
months ended March 31, 1997, representing an increase of 41.03%. Net earnings,
after income taxes and exclusive of gains on sales of securities available for
sale were $1,832,000 for the three months ended March 31, 1998 compared to
$1,573,000 for the three months ended March 31, 1997, representing an increase
of 16.47%.
Interest and Dividend Income
Interest and dividend income for the three months ended March 31, 1998
increased by $165,000 to $14,447,000 compared to $14,282,000 for the
corresponding period in 1997. The increase in interest and dividend income for
the three months ended March 31, 1998 compared to the three months ended
March 31, 1997 is primarily attributable to an increase in the yield on interest
earning assets to 8.20% at March 31, 1998 from 7.88% at March 31, 1997,
partially offset by the decrease in average interest earning assets of
$20,426,000 to $714,221,000 for the three months ended March 31, 1998 compared
to $734,647,000 for the three months ended March 31, 1997. The increase in the
yield on average interest earning assets related to a change in the mix of those
assets, with the average balance of higher yielding loans increasing $68,886,000
in 1998 compared to 1997, while the average balances of securities held to
maturity, securities available for sale and other interest earning assets
decreased by $89,312,000. Loan yields remained relatively stable at 8.91% and
8.93%, respectively, for the three months ended March 31, 1998 and 1997, while
yields on securities and other interest earning assets increased to 6.40% for
the three months ended March 31, 1998, compared to 6.28% for the three months
ended March 31, 1997.
Interest Expense
Interest expense for the three months ended March 31, 1998 decreased by
$477,000 to $6,686,000 compared to $7,163,000 for the corresponding period in
1997. The decrease in interest expense for the three months ended March 31, 1998
compared to the same period in 1997 is primarily due to a decrease in the
average balance of total interest bearing liabilities of $32,262,000 to
$644,492,000 for the three months ended March 31, 1998 compared to $676,754,000
at March 31, 1997, coupled with a decrease in the cost of those liabilities to
4.21% for the three months ended March 31, 1998 compared to 4.29% for the three
months ended March 31, 1997. The average balance of other borrowed funds
decreased $47,612,000 for the three months ended March 31, 1998 compared to the
same period in 1997, as did the cost of borrowings to 4.90% for the three months
ended March 31, 1998 compared to 5.23% for the same period in 1997. This was
partially offset by increases in the average balances of savings deposits and
time deposits of $11,472,000 and $3,878,000, respectively for the three months
ended March 31, 1998 compared to the same period in 1997. The average cost of
savings deposits was relatively stable at 2.65% for the three months ended
March 31, 1998 compared to 2.63% for the three months ended March 31, 1997, and
the cost of time deposits increased to 5.63% for the three months ended
March 31, 1998 compared to 5.54% for the three months ended March 31, 1997.
Net Interest Income
Net interest income increased by $642,000 for the three months ended
March 31, 1998 compared to the same period in 1997. The increase for the three
months ended March 31, 1998 compared to the same period in 1997 relates to an
increase in the net yield on interest earning assets as well as the interest
rate spread. The Company's interest rate spread increased from 3.59% for the
three months ended March 31, 1997 to 3.99% for the three months ended
March 31, 1998. The net yield on interest earning assets increased from 3.93%
for the three months ended March 31, 1997 to 4.41% for the three months ended
March 31, 1998.
Provision for Possible Loan Losses
The provision for possible loan losses for the three months ended
March 31, 1998 was $300,000, compared to $225,000 for the three months ended
March 31, 1997. The increase in the provision for the three months ended
March 31, 1998, compared to the same period in 1997, related primarily to an
increase in net loan charge-offs for the three months ended March 31, 1998
compared to the same period in 1997, as well as management's overall evaluation
of the adequacy of the level of the allowance, in relation to nonperforming
loans and total loans. The level of net charge-offs for the three months ended
March 31, 1998 was $459,000, compared to $279,000, for the corresponding period
a year ago.
The adequacy of the allowance for possible loan losses is evaluated by
management on a quarterly basis. This review includes an assessment of problem
loans and potential unknown losses based on current economic conditions, the
regulatory environment and historical experience. The provision for possible
loan losses represents charges to operations necessary to maintain the allowance
at a level which management believes will be adequate to absorb possible losses.
Management believes that the allowance for possible loan losses is adequate.
While management evaluates the allowance for possible loan losses based upon
available information, future additions to the allowance may be necessary.
Additionally, regulatory agencies review the Company's allowance for possible
loan losses as part of their examination process. Such agencies may require the
Company to recognize additions to the allowance based on judgments which may be
different from those of management.
Noninterest Income
Noninterest income for the three months ended March 31, 1998 totaled
$2,247,000, compared to $3,243,000 for the same period in 1997. The decrease
of $996,000 relates primarily to a decrease in net gains on sales of securities
available for sale of $961,000 to $1,099,000 for the three months ended
March 31, 1998 compared to $2,060,000 for the three months ended March 31, 1997.
Noninterest Expense
Noninterest expenses for the three months ended March 31, 1998 decreased
$268,000, or 4.37% to $5,859,000 as compared to $6,127,000 for the same period
a year earlier. The decrease for the three months ended March 31, 1998,
compared to the same period in 1997 relates primarily to a decrease of $87,000
associated with salaries and benefit expenses and a decrease in other
noninterest expenses of $243,000, partially offset by an increase of $104,000
in other real estate owned expenses.
Income Taxes
Income tax expense for the three months ended March 31, 1998 was
$1,342,000, compared with $1,173,000 for the same period in 1997. The increase
in income tax expense for the three months ended March 31, 1998, compared to the
same period in 1997, related primarily to the benefit of certain deferred tax
assets which were fully recognized in 1997. Income tax expense as a percentage
of earnings before income taxes was 34.87% for the three months ended
March 31, 1998 and 29.25% for the three months ended March 31, 1997.
Risk Elements
Total nonperforming loans decreased from $7,145,000 or 1.40% of total
loans, at December 31, 1997, to $4,835,000 or 0.91% of total loans, at
March 31, 1998. During the same period, other real estate owned, declined from
$1,905,000 to $1,589,000. The allowance for possible loan losses as a percent
of total nonperforming loans was 154.95% at March 31, 1998, compared with
107.08% at December 31, 1997.
As shown in the following table, nonperforming assets as a percentage
of total assets were 0.83% and 1.11%, as of March 31, 1998 and
December 31, 1997, respectively.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 314 $ 535
====== ======
Nonaccrual/nonperforming loans $ 4,835 $ 7,145
Other real estate owned 1,589 1,905
------ ------
Total nonperforming assets $ 6,424 $ 9,050
====== ======
Allowance for possible loan losses $ 7,492 $ 7,651
Nonperforming loans as a percent of
total loans 0.91% 1.40%
Allowance for possible loan losses
as a percent of total
nonperforming loans 154.95% 107.08%
Nonperforming assets as a percent of
total assets 0.83% 1.11%
</TABLE>
Liquidity
The Company's primary sources of liquidity, through its subsidiary bank,
are its borrowing capacity with the Federal Home Loan Bank of Boston, interest
bearing deposits with the Federal Home Loan Bank of Boston and securities
available for sale, particularly short-term investments. At March 31, 1998,
short-term and long-term borrowings from the Federal Home Loan Bank of Boston
were $5,585,000, with an additional available borrowing capacity of
approximately $245,100,000; interest bearing deposits with the Federal Home Loan
Bank of Boston were $9,731,000 and securities available for sale were
$150,745,000. Included in securities held to maturity and securities available
for sale are debt securities with a carrying value of $141,366,000. The
weighted average maturity for all debt securities held to maturity and available
for sale, excluding mortgage-backed securities with a carrying value of
$19,672,000, is approximately 34 months. In addition to these liquidity
sources, the Company has significant cash flow from the amortization of loans
through its subsidiary bank.
Capital Resources
Under the Federal Reserve Board's guidelines, bank holding companies
such as the Company currently are required to maintain a minimum ratio of
qualifying total capital to total assets and off-balance sheet instruments, as
adjusted to reflect their relative credit risks, of 8.0 percent. At least
one-half of total capital must be comprised of common equity, retained earnings,
non-cumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill ("Tier I capital").
The Federal Reserve Board also has established an additional capital
adequacy guideline referred to as the Tier I leverage capital ratio, which
measures the ratio of Tier I capital to total assets less goodwill. Although
the most highly-rated bank holding companies will be required to maintain a
minimum Tier I leverage capital ratio of 3.0 percent, most bank holding
companies will be required to maintain Tier I leverage capital ratios of 4.0
percent to 5.0 percent or more. The actual required ratio will be based on
the Federal Reserve Board's assessment of the individual bank holding company's
asset quality, earnings performance, interest rate risk, and liquidity. The
Company was in compliance with all regulatory capital requirements at
March 31, 1998 and December 31, 1997.
Substantially similar rules have been issued by the FDIC with respect to
state-chartered banks which are not members of the Federal Reserve System such
as the subsidiary bank. At March 31, 1998 and December 31, 1997, the subsidiary
bank was in compliance with all regulatory capital requirements. Additionally,
at March 31, 1998, the subsidiary bank was considered "well capitalized" for
purposes of the FDIC's prompt corrective action regulations.
At March 31, 1998 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------------
Subsidiary
Bank Company
---------- ---------
<S> <C> <C>
Tier I leverage capital 7.78% 8.16%
Tier I capital to risk-weighted assets 12.65% 13.27%
Total capital to risk-weighted assets 13.91% 14.52%
</TABLE>
The table on the following page presents, for the periods indicated,
average balances of assets and liabilities, as well as yields on interest
earning assets and the cost of interest bearing liabilities.
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Consolidated Quarterly Average Balances and Interest Rates
($ in thousands)
1998 QTD 1997 QTD
---------------- ------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter
Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 513,365 8.91% $ 499,316 8.93% $ 488,820 8.86% $ 464,524 8.95%
Securities and
interest earning
investments 200,856 6.40% 232,678 6.23% 250,838 6.30% 289,349 6.35%
Total interest ------- ------- ----- ------- -------
earning assets 714,221 8.20% 731,994 8.07% 739,658 7.99% 753,873 7.95%
Noninterest earning
assets 79,945 77,425 73,898 71,612
Allowance for loan
losses (7,749) (7,248) (6,632) (6,205)
------- ------- ------- -------
Total Assets $ 786,417 $ 802,171 $ 806,924 $ 819,280
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 289,066 2.65% $ 288,095 2.60% $ 284,281 2.61% $ 284,767 2.63%
Time Deposits 279,405 5.63% 290,428 5.67% 284,698 5.64% 282,420 5.58%
Other borrowed funds 76,021 4.90% 79,722 5.03% 102,852 5.21% 122,697 5.31%
Total int. bearing ------- ------- ------- -------
liabilities 644,492 4.21% 658,245 4.25% 671,831 4.29% 689,884 4.31%
Noninterest bearing
deposits 66,622 70,227 64,624 62,872
Other liabilities 5,787 7,095 5,133 4,382
Stockholders' equity 69,516 66,604 65,336 62,142
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 786,417 $ 802,171 $ 806,924 $ 819,280
======= ======= ======= =======
Interest rate spread 3.99% 3.82% 3.70% 3.64%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 69,729 4.41% $ 73,749 4.25% $ 67,827 4.09% $ 63,989 4.00%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
1997 QTD 1996 QTD
---------------- ------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter
Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 444,479 8.93% $ 433,683 9.01% $ 423,761 8.90% $ 411,443 8.94%
Securities and
interest earning
investments 290,168 6.28% 287,014 6.10% 279,605 5.98% 272,952 6.07%
Total interest ------- ------- ------- -------
earning assets 734,647 7.88% 720,697 7.85% 703,366 7.74% 684,395 7.79%
Noninterest earning
assets 70,575 70,125 66,284 65,104
Allowance for loan
losses (6,279) (6,459) (6,373) (6,824)
------- ------- ------- -------
Total Assets $ 798,943 $ 784,363 $ 763,277 $ 742,675
======= ======= ======= =======
Liabilities and stock-
holders' equity:
Savings deposits $ 277,594 2.63% $ 279,459 2.67% $ 276,521 2.63% $ 272,646 2.59%
Time Deposits 275,527 5.54% 267,595 5.53% 261,105 5.60% 260,392 5.63%
Other borrowed funds 123,633 5.23% 113,202 5.16% 107,733 5.18% 93,500 5.29%
Total int. bearing ------- ------- ------- -------
liabilities 676,754 4.29% 660,256 4.25% 645,359 4.26% 626,538 4.26%
Noninterest bearing
deposits 57,893 62,285 59,498 57,989
Other liabilities 3,630 3,931 3,367 3,456
Stockholders' equity 60,666 57,891 55,053 54,692
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 798,943 $ 784,363 $ 763,277 $ 742,675
======= ======= ======= =======
Interest rate spread 3.59% 3.60% 3.48% 3.53%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 57,893 3.93% $ 60,441 3.95% $ 58,007 3.83% $ 57,857 3.90%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
March 31, 1998
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material changes in the Company's assessment of its
sensitivity to market risk since its presentation in the 1997 annual report
filed with the SEC.
Part II - Other Information
Item 1. Legal Proceedings
The Company is a defendant in ordinary and routine pending legal actions
incident to its business, none of which is believed by management to be material
to the financial condition of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
27 Financial Data Schedule
2. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRANITE STATE BANKSHARES, INC.
/s/ Charles W. Smith
________________________________________
Dated : May 14, 1998 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
________________________________________
Dated : May 14, 1998 By: William G. Pike
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 38,235
<INT-BEARING-DEPOSITS> 9,731
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,745<F1>
<INVESTMENTS-CARRYING> 14,217
<INVESTMENTS-MARKET> 14,370
<LOANS> 527,097<F2>
<ALLOWANCE> 7,492
<TOTAL-ASSETS> 776,128
<DEPOSITS> 633,260
<SHORT-TERM> 67,666<F3>
<LIABILITIES-OTHER> 3,859
<LONG-TERM> 597<F4>
0
0
<COMMON> 6,769
<OTHER-SE> 63,977
<TOTAL-LIABILITIES-AND-EQUITY> 776,128
<INTEREST-LOAN> 11,275
<INTEREST-INVEST> 2,975
<INTEREST-OTHER> 197
<INTEREST-TOTAL> 14,447
<INTEREST-DEPOSIT> 5,768
<INTEREST-EXPENSE> 6,686
<INTEREST-INCOME-NET> 7,761
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 1,099
<EXPENSE-OTHER> 5,859
<INCOME-PRETAX> 3,849
<INCOME-PRE-EXTRAORDINARY> 2,507
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,507
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 4.41
<LOANS-NON> 4,835
<LOANS-PAST> 314
<LOANS-TROUBLED> 69
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,651
<CHARGE-OFFS> 599
<RECOVERIES> 140
<ALLOWANCE-CLOSE> 7,492
<ALLOWANCE-DOMESTIC> 7,492
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Securities available for sale, at market value
<F2>Loans net of unearned income, gross of allowance for possible loan losses
and excluding loans held for sale
<F3>Securities sold under agreements to repurchase of $62,678 and short term
borrowings with the Federal Home Loan Bank of Boston of $4,988
<F4>Includes other borrowings with the Federal Home Loan Bank of Boston of $597
</FN>
</TABLE>
